Wednesday, November 12, 2014

A Double Irish Dutch Sandwich for EconoKash

Ireland has long been a favorite country for multinationals to set up shop in, thanks in part to its 12.5% corporate tax rate – one of the lowest in the world. A typical situation would be for a multinational based in the US or Asia to set up an Irish subsidiary as the principal entity from which to run its European business, thereby allowing it to legally record a significant portion of its European income in Ireland.

Actually 12.5% is far from being one of the lowest in the world but I’ve interrupted:

why does Germany treat Ireland so differently from Cyprus when it comes to providing financial assistance? One possible explanation is that the corporate tax rate in Cyprus, which had been set at 10%, was seen by Germany as being more egregious than Ireland’s rate.

But Cyprus may not be more egregious than Ireland as explained by Jesse Drucker:

Google cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent

The rest of this discussion is well worth the read. Look – international tax law can be challenging at times as effective rates can be much lower than statutory rates. A bigger challenge is why the national tax authorities allow transfer pricing mechanisms to shift so much income to places like Bermuda.